The Land of the Free?

I've been making comments on SL Reports and a few blogs that deal with the Second Life economy, stating my opinions on what I see as the end of the free market. That is something of a hyperbole to be sure as there will seem to be no restriction on buying megaprims from someone even though they are freely available.

To explain what I mean about the end of a free SL market, it might be useful to compare it with the rise of the middle class in the late Middle Ages. During much of the time after the collapse of the Roman Empire, feudal manors tended to be self-sustaining entities. There was no need for trade or the like as the serfs did all the work needed for continued prosperity of the fief lord. Simply put, those who controlled the land didn't need to advance society.

When guilds were being created in the towns of Northern Europe, there came into being the beginnings of what we call the middle class. Not at the same economic prosperity as a feudal land-owner, but certainly more freedom than most serfs. In order to advance themselves against the reactionary aristocratic system, they had to develop means of managing wealth. For them, wealth was the result of labour put into their respective crafts instead of land holding.

So far, so good. Obviously in Second Life there will continue the presence of designers, animators, scripters, and builders. There is no reasonable objection to what most of them do, so in that sense the free market will exist. However, to what I am referencing is the innovation for the management of wealth by this pool of talent.

A way to look at it is that most businesses that have high survival rates are those that do more than simply operate their craft. Many of them have to have the resources to conduct their skills and be successful at it. Communities of individuals working together toward a common objective are far more likely to prosper than those working alone. This gestalt is the kernel of what a corporation is, or at least a partnership.

In a lot of cases, such communities require an investment into what activity they are performing. It could be as simple as a sponsor, but that is just an alternate form of the feudal model. For communities to have the independence to operate their skills, investment needs to have a broader base of support.

Of course no one is stopping people from giving out loans to another individual, but the basic human tendency is to have some expectation of a return. I might give or loan money to a family member or a close friend, but I'd be daft to entrust it to someone else without some incentive, meaning dividend. And yet when stretched to a logical extreme, this is precisely what LL's policy does.

When I make a deposit in a bank, I'm not simply letting them hold onto my funds while I go off somewhere else. In Second Life, I can simply hold onto it where it is safer. (Talk about a reversal of what is the safest location.) Instead, I am loaning my money to a financial entity which then invests elsewhere. That is why funds get depleted when there is a high volume of withdrawals in a short time-frame. As a gesture of the trust that I am engendering, I am compensated for my loan with a return on it in the form of interest.

Yes, some of these places will simply take that money and run, but that's also a risk that they take when they invest themselves. A borrower might simply not log in again, leaving a bank out of luck. With the high risk comes the high rate of interest, otherwise it would be insufficient in a cost-benefit analysis.

Banking is a two-way street. A depositor becomes the lender, and the reverse hold true when loans are made or some other service offered. The middle class of centuries ago understood this, and despite usury prohibitions, they worked around it to spawn a new level of how a market works. A free market would allow people to make that decision on their own, even if there is some level of regulation. An outright prohibition stomps that out.

No longer will an ambitious businessperson be able to ask other people for the chance to expand beyond what they can do alone. Only those with the wealth to begin with will be able to operate in that capacity, while potential investors will no longer be able to share in that journey. It's not just an aristocracy and peasantry type of system. Free markets are not the domain of peasants.